Thursday, December 23, 2010

Canada Bullish On US Economy

Last week, the Bank of Canada held steady on interest rates, leaving the overnight rate at one per cent. While the U.S. economy is revving up again, Canada has lagged. In the third quarter, GDP growth fell to one per cent, half the rate seen in the second quarter. Despite seeing an increase in exports to China, the U.S. is still the destination for nearly 75 per cent of Canada’s exports, so a strong rebound in that economy will help us immensely. At the same time, fears over the U.S. economy helped drive down the value of the greenback, hurting manufacturers here whose goods, priced in soaring Canadian dollars, have become more expensive. As things improve south of the border, that should take some of the air out of the loonie and lift trade.

Canada also stands to benefit from the recent compromise between President Barack Obama and Republican legislators to extend Bush-era tax cuts and unemployment benefits. As a result, economists at the Bank of Montreal now expect Canada’s economy to grow 2.7 per cent, up from 2.4 per cent. “The compromise stimulus deal is a welcome boost for the U.S. economy, household and business confidence, and, by extension, Canadian trade,” Sherry Cooper, BMO’s chief economist, wrote in a report.

The view from Canada is a lot like the outsider perspective on Pittsburgh. There's no reason to be overly optimistic or pessimistic. The assessment isn't coming from boosters or cranks. And no, I'm not concerned that the United States will become complacent as a result of the rosy forecast.